Graeme McDonald, Director of Policy and Communications at SOLACE, posts his reflections on the LGA finance report:

Two events this week may have given us an uncomfortable view into the future. The LGA’s report: Funding outlook for councils from 2010/11 to 2019/20, painted a bleak picture of the funding of local public services.

Our aging population and the rising costs of care is a well told story, but we were given a stark insight into its fundamental impact across local government. It is now clear just how social care and waste services will dominate local government finance and consume a huge percentage of the local public purse.

But this week also saw the South London NHS Healthcare Trust become officially ‘financially unsustainable’. Three hospitals have notified Andrew Lansley that they will be to be put into a form of administration within weeks and are losing around a million pounds a week. This was closely followed by serious concerns being raised Care Quality Commission, with it reporting that the hospitals were delivering unacceptable levels of care.

The blame is being placed firmly at the door of their PFI deal which is costing them £61million per year but, having already received part of a £1.5billion ‘bailout’ this year, there are some considerable underlying financial problems across parts of the NHS.

Bringing these two stories together begs the question, might the same happen in local government? Can we foresee an authority going bust?

To date many frontline services have been protected but ever more difficult choices are being made. Public concern at service closures will only be heightened as we continue along this path and this will heap even more pressure on authorities to take larger financial risks.

But if the LGA’s conservative estimates make difficult reading, it must be remembered that it focuses only on the aggregate or the average. In some authorities the funding gap will become critical far more quickly. Different areas of the country will be affected in different ways. There is a diversity of crisis, but crisis it is.

Social care is rightly highlighted as a key driver of cost. Authorities with those responsibilities will feel the immediate impact with their demographic determining its pace. But it is simplistic to look solely at social care costs. An authority’s income base will also have a profound impact on its ability to cope with austerity. Those authorities reliant on government grant to support significant proportions of their spending will have far less flexibility to respond. The LGA report assumes council tax rises of 2% after April 2015, but if you are proportionately more reliant on the government for your income, this is assumed to continue to fall.

So should we expect headlines focused upon local council’s being financial unsustainable or put into ‘administration’? Given local government’s success in managing austerity to date, I feel we should expect the best, but plan for the worst.

The sectors self-improvement work has done much to ensure checks and balances are in place to pick up problems early. Members and officers are working closely to ensure communication channels are open and transparent, that lessons are learnt and shared quickly. The strength of local government comes from its collaboration and openness. We should encourage all in the sector to work with others, to use their networks and support those in more challenging positions.

But local government cannot solve this problem alone. Government does need to make some early policy decisions, most obviously on social care reform and community budgets. It should also support local government and ignite a real debate about the future of public services and how they are paid for. More honesty about what can be achieved is required, as is more openness to engage local communities in the production and commissioning of services. This week we have heard some sobering messages, so we must remember that from the greatest challenge, can come the greatest creativity.

First published on the Guardian website on Friday 29th June 2012

These, and other challenges facing local public services will be the focus of discussions at the SOLACE Summit in Coventry on 16-18th October. More information and details of how to book are available here.